Robert owns 100 shares of ABC stock with a cost basis of $30 a share....
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Robert owns 100 shares of ABC stock with a cost basis of $30 a share. The stock is currently trading at $50 a share. Robert believes the price of ABC stock will fall to $45 a share in the near future but over the longer term of 3 to 5 years, increase in value to $75 a share. Robert would like to benefit from the expected near-term decline if it occurs. Therefore, Robert writes a covered call at a strike price of $55 and a premium of $3. (e) If the price moved from $50 to $45, what would be Robert's profit/loss if covered? (3 marks) What is the maximum profit or loss Robert can incur from the call if exercised? (3 marks) What is the maximum profit for Robert if the call was not covered
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